Alexa, What Is Blockchain?

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The last few years have seen a rise in technologies that promise to change the world as we know it. Blockchain is one of the technologies at the center of this universe. We’ve seen headlines like, “Audit dead in a decade?”, “Blockchain isn’t so bad …,” and “Blockchain will start to become boring.” Blockchain is going to change how business is conducted today and into the future, just like any other business application. The billion-dollar questions are how and when. Let’s start with blockchain fundamentals.

Fundamentals

Blockchain, as most know it, is a public, decentralized distributed ledger that can store and confirm all transactions recorded to the ledger. Wait, what? Let’s break down that sentence into what it means to you and my mother. Public simply means available for anyone to use. Decentralized means reducing the power any one party may have over the other and in the end being less likely to find our data being at the mercy of a single institution. Distributed ledger is the avenue used to store and share valuable data and could be anything from a home deed to digital currency.

Public vs. Private

Many think of blockchain transactions as being available to the public, similar to bitcoin. But what happens when I transfer my bitcoin to a public exchange, conduct business on that exchange and withdraw my bitcoin? The business that was conducted on the exchange is not public information, just like stock trades in your brokerage account.

Blockchain provides the opportunity for public and private ledgers to work together and provide the best of both worlds. Imagine paying your employees through blockchain, whereby the transactions are recorded within your private general ledger, and the payroll taxes, retirement funds, and health insurance information are recorded within a consortium (hybrid) ledger. In a case like this, only invited parties would have access to participate in respective ledgers, and then payments would be remitted on a public ledger in the form of bitcoin to those respective vendors.

What Happens to Your Auditors?

I’ve seen the headlines, read the articles and contemplated my career when they say, “Your job will be gone in five years.” Here is a direct quote from an accounting professor: “The distributed ledger reduces the need for audit by 97%. Audits in the future will be competed on the basis of productivity, which will essentially mean who has the fastest hardware and software. And fraud, in the classical sense, will be all but impossible.”

Wow, our professor has overestimated that everyone and every business will be on a gigantic, public, decentralized distributed ledger where anything is possible! That would require an unbelievable amount of trust in a system in less than 10 years that leads to everything being verifiable. I’m not ready to hand over all of my data to a decentralized system where my cash inflows and outflows, including my daily coffee habits, are public knowledge. Are you?

For blockchains to eliminate auditors, there must be a problem within the current state according to the public, a return on investment for the investor and commitment to 100% adoption by all companies. Audits will continue to evolve, as they have over the last several years; that is a statement you cannot argue with. However, the assumption that all transactions are recorded, categorized correctly and authorized is why accounting professionals are still needed. For example, the argument that you didn’t pay your taxes because you were unaware of your obligation doesn’t fly with the IRS; ignorance in this case will be no different.

Data analytics is a great example of a similar “game changer” that has been discussed and highly touted over the last 5-10 years. While some companies have jumped on board, many others are still hesitant to employ these strategies. Similarly, ask lawyers their thoughts on LegalZoom, which first started offering legal service products to the public in 2001. The last time I checked, lawyers haven’t disappeared, right? In fact, a counterargument could be made that they are doing more work than before LegalZoom to help correct their client’s intentions. In other words, blockchain will change how business is conducted; however, it will not be perfect and will not be nearly as fast as many are implying.

This implementation timeline is another concept that many are not fully aware of. There are some significant barriers to overcome, the largest being the sheer computing capability necessary for blockchain to operate effectively. People mine bitcoin, and it takes weeks to make a coin. The more secure the “chain,” the longer it takes to register something on the ledger. That makes sense, right? If the lock is more complex, it will take longer to open it. Currently, without quantum computing, it would take over 100% of the electrical grid capacity to power the computers to do everything blockchain promises to accomplish.

Three Areas Where Blockchain May Make Your Life Easier in the Future

  1. Cash: Bitcoin and others may or may not be the answer to a lot of problems within our current system; however, when you break it down into the simplistic view that it is utilized by independent companies as a secure way of transacting business with nearly instant settlement in comparison with the current banking system, the possibilities start to expand. That is one of the reasons a large bank such as JPM is coming out with its own coin or Fidelity with its own crypto exchange, both in 2019.
  2. Smart Contracts: Why so smart? Smart contracts allow entities to connect multiple inputs to prove contractual obligations are met. Upon those obligations being met, payment would be disbursed and recorded to other blockchains. Put another way, smart contracts in their simplest form are decentralized automation that facilitate, verify and enforce the performance of a transaction. To provide a simple example, a company ships a product to a customer; however, the funds will not be released until the tracking information shows that the product was delivered to the customer.
  3. Supply Chain Management: Wal-Mart is one of the largest and most well-known examples in blockchain supply management, which will soon require lettuce and spinach suppliers to utilize their blockchain database, which will allow rapid location of the source of any contamination. Now let’s take it a step further: Consumers can scan a code from their phone to see the origins of that spinach, including when it was picked. Now imagine that instead of tracking just spinach, you’re able to track the ingredients of your pasta sauce using the same app on your phone. Blockchain will allow large amounts of data to interact with end users in a way we’ve never seen before, and that will only continue to evolve year over year.

In summary, blockchain will change the general concept of how we think of accountants. As routing tasks are automated, the role of accountants will become more and more focused on advisory and analysis, rather than traditional “ticking and tying.”

The burning question is when. Depending on who you ask, you may get a very different timeline, so what is the answer? Generally speaking, we overestimate the amount of technological change that is going to occur in the next 2-5 years, and we underestimate the amount of technological change that is going to occur in the next 10-20 years. Blockchain is no different. Stay tuned.

 

Hospitals look to value-based contracting in healthcare supply chain

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Almost three-quarters of C-suite and supply chain leaders say their health systems prioritize value-based contracting, although barriers remain.

Most hospital and health system leaders are interested in value-based contracting when it comes to their supply chains, but a new Premier survey shows a lack of opportunities to lock down contracts with suppliers.

Among 200 C-suite executives and supply chain leaders, 73 percent said their health systems prioritize value-based contracting when looking to improve their return on investment.

IMPACT

In perhaps another sign of the inevitability of value-based care, 81 percent of respondents said they would be interested in more suppliers offering value-based contracting options.

Despite that, only 38 percent said they had participated in value-added or risk-based contracting with suppliers or pharmaceutical companies.

There are some barriers. When asked if they had considered participating in value-based contracts with suppliers with both up- and downside risk/reward, 55 percent said they didn’t know enough about shared risk contracts. Another 20 percent said they’re actively considering such contracts; 16 percent are already participating in them.

As for why many providers haven’t yet taken part in value-based or risk-based contracting with suppliers, 67 percent said it’s due to not having been engaged by a supplier. About 11 percent said it doesn’t align with the organization’s strategy.

WHAT ELSE YOU SHOULD KNOW

Respondents provided some examples of value-based contracts they had implemented, and at the top of the list was surgical services at 13 percent.

Following that was purchased services (11 percent); cardiovascular (11 percent); pharmacy and materials management (9 percent); nursing (8 percent), imaging and lab (6 percent); and facilities (5 percent).

Data was the most common challenge, cited by 22 percent of respondents. That was followed by internal communications (14 percent); coordination with suppliers (12 percent); infrastructure support (11 percent); and physician buy-in (10 percent).

THE TREND

Research this year from Sage Growth Partners highlighted the challenges providers face in succeeding under value-based contracting. Slightly more than two-thirds of the survey’s 100 respondents said value-based care has provided them with a return on investment, but many have had to supplement their electronic health records with third-party population health management solutions to get the most bang for their buck.

Want to cut health-care costs? Start with the obscene amount of waste.

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A year of investigating revealed a staggering amount of supplies and drugs are simply thrown away.

In Maine, there’s a warehouse the size of a middle school gymnasium, stuffed with brand-new medical supplies and gently used medical equipment. Several pallets are piled with boxes of surgical sutures, still in their shrink wrap, each box worth hundreds of dollars. Tubs overflow with diabetes supplies and surgical instruments that may run hundreds of dollars apiece. There are bins of bandages and gauze and saline and ostomy bags and every other medical supply you can imagine. These materials, unexpired, could easily stock any hospital or clinic. But each item has actually been thrown away by a local medical facility.

The cost of health care has been rising for decades, and Americans are paying the price. In a recent Gallup poll, people cited the high cost of care as their No. 1 financial concern. It’s an enormous problem, and trying to solve it all at once brings on panic and paralysis. But after reporting for a year on the ways the medical industry blows through our money, I have one idea: Let’s end the egregious waste that’s draining our health-care system.

The National Academy of Medicine has estimated the health-care system wastes around $765 billion a year — about a quarter of what we spend. Eliminating all the waste could allow us to insure 150 million Americans, the Academy of Medicine said, and saving half of it could provide groceries for every household in the country for a year. Eliminating the waste would also stop our rising health-care costs from eating up our wage increases. My premiums go up 9 percent next year. Same thing happened last year. Odds are your costs are rising, too.

It’s hard to downplay what I found when I began investigating the issue. Hospitals throw out so many valuable supplies that a cottage industry of charities has sprung up to collect this stuff and ship it to the developing world — otherwise, all those goods in that Maine warehouse would be headed for a landfill.

Nobody tracks how much hospitals waste rather than donate, and I couldn’t track down where each item came from. But experts told me when hospitals change vendors for a type of supply, they often toss the old stuff. Or, if they take over a clinic or facility, they get rid of the items that come with it, even if they are unused and unexpired.

The operating room is a major source of wasted spending. One hospital tracked the value of unused items that went to waste during neurosurgery procedures in a single year. The total: $2.9 million — for one type of surgery at just one hospital. In that case, the surgeons hadn’t updated their system of telling the staff which supplies to prep for each operation. They were opening many items they didn’t need, which then had to be thrown away even though they were unused. The hospital updated its approach to make sure they aren’t setting up for operations with excess supplies.

I learned that nursing homes throw away hundreds of millions of dollars’ worth of valuable medication every year. They typically dispense drugs a month at a time for patients, and often have them discontinued if the patient dies or transfers. The excess drugs get trashed, incinerated or even flushed down the toilets, contaminating our water supply. The chief executive of a pharmacy that serves nursing homes in Florida told me that his company alone throws away about $2.5 million a year in valuable medication.

In Iowa, the state government funded a program to recover these castoff nursing home meds and donate them to needy patients, for free. This year, they’re on pace to recover and redistribute $6 million in medication. My story led policymakers in Florida and New Hampshire to introduce legislation to try to replicate the Iowa program.

Drugs are a huge source of waste, partly because drug expiration dates don’t mean what we think they mean. The Food and Drug Administration makes pharmaceutical companies show their medication is safe and effective until its expiration date. It doesn’t make them find out how long they actually last.

Studies show it’s common for a drug to be safe after its expiration date. The FDA runs a program that tests and then extends expiration dates on drugs in the federal government’s stockpiles. Those same drugs get thrown away in pharmacies when they “expire,” even though many of them are in short supply. How much of our money does it waste? One midsize hospital in Boston throws away about $200,000 worth of drugs a year that hit their expiration date. If that’s true for other hospitals, the total would be about $800 million a year for hospital pharmacies alone.

Meanwhile, drug companies are making eyedrops two or three times larger than what the eye can even contain. We are paying for the wasted medicine running down our cheeks. I spoke to the former head of research for Alcon Laboratories, a global leader in the eye care industry now owned by Novartis. He told me that in the early 1990s his team created a “microdrop” that eliminated the waste. The microdrops were effective and reduced the burning caused by larger drops. But Alcon’s leaders killed the project because they were worried it could reduce sales.

Vials of cancer drugs are also made too large, which one study said wastes about $1.8 billion a year in the valuable medication. Earlier this year, one drug company switched from a multiuse vial, which could be shared by patients, to a single-use vial that could not be shared, thereby increasing the amount of wasted cancer medication. The change would make the supply chain more reliable worldwide, the company said. But one cancer center calculated that the change would cost each patient an average of $1,000 in waste per infusion. Imagine: You’re fighting cancer and then get billed an extra thousand dollars for medication they toss in the trash. Two U.S. senators responded to my story by introducing legislation to solve the problem of oversized eyedrops and cancer drug vials.

These are not isolated examples or small sums being squandered. Let’s say my reporting identified about $10 billion in wasted spending. That’s a rough estimate because no one is actually tracking how much we’re wasting. What else could we be doing with that money? The Kaiser Family Foundation says it costs an average of $6,690 to pay one person’s insurance premium in 2017. At that rate, the $10 billion saved could insure about 1.5 million people for a year. Tell those people it isn’t important to reduce our wasted health-care spending.

The Academy of Medicine did something smart when it reframed our health-care overspending as waste. We may be a wasteful country, but we still teach our kids to eat everything on their plates. “Waste not, want not,” is baked into our cultural DNA. It’s a powerful concept because it’s a moral one. It’s wrong to squander the hard-earned dollars Americans are paying into the health-care system and then demand they pay more.

We can’t be naive and think it will be easy to fix this problem. Our wasted spending represents revenue and profit for the medical industry. But our health-care spending should not be an entitlement program for the medical industrial complex. I put together a prescription for reducing the wasted spending I identified. Our policymakers should stand up to the medical industry and stamp out the waste.

 

The hospital divestiture trend is heating up, and not going away anytime soon

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Not long ago, health systems gobbled up hospitals with the overriding goal of growth, expanded footprints and market share. Some major health systems are now regretting those buys as they have become saddled with community hospitals that are losing money and struggling with large debt and capital needs.

Two major health systems facing this issue are Community Health Systems (CHS) and Tenet Healthcare, who are both looking to shed facilities.

“The strategy that CHS, Tenet and many others had was to really build around scale without really thinking about the regional economics of how these hospitals work together,” Gregory Hagood, senior managing director at SOLIC Capital Advisors, which works with hospitals on mergers and acquisitions, told Healthcare Dive.

Health systems like CHS and Tenet grew their systems with large purchases, but they’ve learned from their experiences and are now looking at divestiture options as a way to shed unprofitable hospitals and billions of debt. No longer are major systems and investors interested in buying struggling hospitals, which CHS did when it purchased the struggling Florida system Health Management Associates for $7.5 billion in 2014.

CHS and Tenet look to cut facilities, debt

CHS, a for-profit system with 137 hospitals in 21 states, is looking to divest at least 30 hospitals this year. They have already announced more than 20 hospital sales this year. CHS’ divestitures come after the health system lost $1.7 billion last year and accumulated about $15 billion in debt. Given their financial situation, Moody’s Investors Service recently downgraded CHS’ corporate family rating, probability of default rating and senior unsecured notes.

Meanwhile, Tenet Healthcare, the third largest investor-owned U.S. health system, is looking into strategic business options that may include a sale. The Wall Street Journal estimated Tenet has a market value of $1.6 billion, which is a far cry from what it owes. Fitch Ratings reported that Tenet had about $15.4 billion of debt at the end of June.

Tenet recently announced it’s selling eight U.S. hospitals and all of its nine U.K. facilities, which CEO Trevor Fetter said will yield between $900 million and $1 billion.

In addition to the sales, the company is dealing with executive and board shake-ups. Fetter recently announced his impending departure and two board members left the board because of “irreconcilable differences regarding significant matters impacting Tenet and its stakeholders.”

CHS and Tenet might be the most high-profile systems looking to shed debt and facilities, but they’re far from the only ones. A recent report by Kaufman Hall found that hospital and health systems mergers and acquisitions increased 15% in Q2. Big players are especially active. There were six transactions of health systems with nearly $1 billion or more in revenues announced in the first half of 2017. There were only four such deals in all of 2016.

Though hospital M&A activity remains high, healthcare financial experts say the days of health systems swallowing small, unprofitable hospitals as part of larger deals to solely build a system’s footprint are gone. Those days have been replaced by more strategic decisions as to what is right for the organizations, Richard Gundling, senior vice president of healthcare financial practices at the Healthcare Financial Management Association, told Healthcare Dive.

Health systems are now taking a strategic view of hospitals to see if they fit into their culture. They are also ignoring small, community hospitals with debt or buying them for much less than they may be worth.

The systems that are selling unprofitable hospitals are also faced with a market in which investors aren’t interested in paying top dollar for struggling hospitals with heavy debt. Instead, Hagood said, investors are more interested in post-acute care services like rehab and long-term care and ambulatory care initiatives. They don’t typically see hospitals as a wise investment.

“Smaller systems that have huge debt loads or pent-up capital demands have received a lukewarm reception at best,” Patrick Allen, managing director with Kaufman Hall’s mergers and acquisitions practice, told Healthcare Dive.

Why are health systems divesting?

Health systems, especially ones that have built up debt, are having trouble making up lost revenues. Hospitals could once cover a struggling type of care through a different, more profitable service. That’s no longer the case as payers and the CMS have squeezed hospital margins.

Sagging reimbursements and payer policies that move patients from hospitals to outpatient care and freestanding facilities are hurting hospital finances. There’s also a CMS proposal to allow hip and knee replacement surgeries for Medicare patients on an outpatient basis. Those kinds of surgeries are often the most profitable for hospitals, which means they may soon lose another revenue driver.

Beyond those direct payer impacts, health systems are looking to protect themselves against a changing industry in which market share isn’t as important as flexibility and efficiency.  “As all of these changes are occurring, the systems are strategically moving and gathering their assets to be able to deal with expected changes,” Gundling said.

Gundling said another issue facing large systems that may lead to divestiture is cultural mismatch. A large system may have swooped in and bought a 100- or 150-bed community hospital as part of a larger purchase. The hospital’s community may have bristled at the idea of a large out-of-state corporate entity buying a mainstay of their community. Plus, physicians may dislike a new system’s clinical protocols.

“There might be times when you say it might not be the right fit for us after all … That can lead to a divestiture decision,” Gundling said.

How are health systems handling divestitures?

Health systems are taking different avenues to deal with possible divestitures. Some systems want to completely rid themselves of certain hospitals. Others look to repurpose small hospitals for outpatient, skilled nursing facilities, labs or imaging while maintaining a large regional hospital. Still others forge partnerships, so they don’t completely sell the properties.

Allen said many health systems see their small community hospitals aren’t bringing in enough revenue and can’t be competitive in every service line and business. So, instead, they are dropping unprofitable services and sticking with what works for them.

Gundling compared health systems’ decisions about divestiture to an individual creating the right investment balance. For health systems, divestitures are not about selling properties, but strategically managing risk. “They aren’t just selling off to sell off. All have different strategies,” said Gundling.

Allen said divestitures are a balancing act for systems. They can shed debt and assets, but that comes with revenue loss. “The balance is always what is the right sale price for the exchange of cash flow when it becomes less than profitable. Balancing those two are always tough,” said Allen.

When deciding on whether to divest, merge or partner with other facilities, Allen said systems need to figure out the community’s needs, the area’s business climate, what the facility wants to be and potential partnership opportunities. Allen, whose company works mostly with nonprofit systems, said many are repurposing underutilized facilities into other uses like rehab, skilled nursing facilities, labs and imaging.

“Once you have a handle on what the market needs and what the market provides, then you can make strategies to get you there,” he said.

Another issue facing health systems is infrastructure. Many smaller hospitals don’t meet today’s care delivery system. “A lot of hospitals don’t lend themselves very efficiently to quality care based on their 30- and 40-year old design,” said Hagood. “That factor can accelerate their repurposing.”

The results and future of the divestiture trend

Allen said divestitures have resulted in systems being able to reallocate capital and move forward with less debt. However, Hagood said one major reason health systems have for divestitures — shedding debt — hasn’t completely worked. Part of the problem is that the new investors aren’t paying top dollar for a struggling community hospital with debt.

“The biggest challenge so far is that they have struggled to get value for those assets to effectively repay that debt,” he said.

Gundling said health systems that have shed debt have followed the divestitures by focusing on cost efficiencies, supply chain management and revenue cycle management.

The hospital divestiture trend has led to sales, mergers and partnerships, with repurposed or downsized facilities, but it hasn’t closed many facilities. That may be coming soon, though.

Hagood said pending mergers, including the Mountain States Health Alliance and Wellmont Health System deal in Tennessee and Virginia, will likely lead to facility closures. There aren’t enough healthcare dollars to support the number of facilities in some of the Appalachian communities involved, he said.

Most of the large divestiture action has been centered around for-profit systems, but Hagood said to watch for more nonprofit action, including Catholic Health Initiatives (CHI), which recently reported a $585.2 million operating loss for fiscal year 2017 after losing $371.4 million in 2016.

Earlier this year, Moody’s Investor Service downgraded CHI’s rating on long-term debt and variable rate demand bonds because of poor operating performance since 2012 and a relatively low level of liquid assets. Moody’s warned that further downgrades could occur unless CHI improves its operating performance.

CHI divested its KentuckyOne facilities earlier this year, a move expected to bring in $534.9 million. Given the company’s finances and healthcare environment, Hagood said there could be more divestitures.

“Nonprofits are going to move slower, but I think you’re going to see them (divest) as economics continue to shift,” he said.

Experts agree the divestiture trend is just heating up as health systems deal with the greater emphasis on outpatient care and freestanding centers. Hagood predicted 24-7 inpatient facilities with full emergency rooms and surgical facilities will continue to dwindle in the coming years as systems repurpose facilities.

“There are 5,000-plus hospitals today. I think you’re going to see that consolidate down,” he said.